UK: Team poaching - doubts over use of forward contracts

The duty of trust and confidence applies to forward contracts;  employees may therefore lawfully withdraw from those contracts if the future employer breaches this duty, according to a recent Court of Appeal ruling.  However, the Court also expressed reservations as to whether forward contracts are lawful.

The Court of Appeal has dismissed an appeal from the judgment in Tullett v BGC (reported in our earlier ebulletin).  The key rulings are:

• Tullett had not constructively dismissed its brokers by seeking to dissuade them from leaving and thereby to renege on their forward contracts with rival BGC, even though it had disavowed having this intention at the outset of its discussions with them.  There will only be constructive dismissal if, on an objective assessment, an employer manifests an intention to abandon and altogether refuse to perform its contracts with the brokers.  Here Tullett's manifest intention was the contrary, ie to preserve the contracts with the employees (as will usually be the case in team poaching scenarios).The position is different where the alleged breach of trust and confidence arises from the indirect effect of an employer's dishonest or corrupt general business conduct, rather than from the way in which the employer treats its employees:  the employer's intention will not be relevant in the former case but may be in the latter.
   
• The implied duty of trust and confidence applied to the forward contracts between the brokers and BGC prior to the brokers starting work for BGC (to the extent appropriate given the individuals' other obligations to Tullett).  BGC committed an anticipatory and repudiatory breach of this duty by making clear that it was set upon bringing about a mass early departure from Tullett whether or not this could be done lawfully.  BGC was doing its utmost by illegal and dishonest conduct to cripple the business of Tullett, the brokers' current employer. This was a breach of trust and confidence and the brokers were therefore entitled to summarily terminate their forward contracts with BGC.
   
• Hooper LJ expressed obiter doubts as to whether the use of forward contracts was compatible with the duties owed to the current employer, particularly given the cumulative effect of terms requiring the employee to take all lawful steps to leave as early as possible, an indemnity against action by the current employer (making the employee more likely to run the risk of breaching his contract), ta substantial signing-on payment and a liquidated damages provision should the individual not join as soon as legally entitled.  Hooper LJ did not go so far as to state that such forward contracts are unlawful (and indeed at first instance Jack J found the forward contracts to be lawful), but this does raise the prospect of a future challenge on these grounds.   This would have significant ramifications for the industry given the wide usage of such contracts.  

The above rulings should be viewed in the context of the Court's strong disapproval of the way BGC went about this poaching exercise, which may well have influenced Hooper LJ's remarks on forward contracts.  (Tullett Prebon v BGC Brokers, CA)